The nation’s Blue Cross and Blue Shield plans say they have increased to more than $71 billion annually the amount of money they are spending on value-based care that rewards better outcomes and coordination of treatment rather than volume of medical services provided.

In escalating their shift away from fee-for-service medicine, the nation’s 37 Blue Cross and Blue Shield companies said today they increased spending on value-based care by 9% to more than $71 billion in 2013 from the year earlier, according to a new report by the Blue Cross and Blue Shield Association.

The trade group said its member plans saved more than $1 billion through programs that “emphasize prevention, wellness and coordinated care while reducing costly duplication and waste in care delivery.”

Blue Cross and Blue Shield companies, which include the likes of Anthem (ANTM) and Health Care Service Corp., say they are building into their contracts with doctors and hospitals a variety of value-based initiatives that include “accountable care organizations (ACOs), patient-centered medical homes, pay-for-performance programs and episode-based payment programs.”

Fifty hospitals in the United States are charging uninsured consumers more than 10 times the actual cost of patient care, according to research published Monday.

All but one of the facilities are owned by for-profit entities and the largest number of hospitals — 20 — are in Florida. For the most part, researchers said, the hospitals with the highest markups are not in pricey neighborhoods or big cities, where the market might explain the higher prices.

Topping the list is North Okaloosa Medical Center, a 110-bed facility in the Florida Panhandle about an hour outside of Pensacola. Uninsured patients are charged 12.6 times the actual cost of patient care.

Community Health Systems operates 25 of the hospitals on the list. Hospital Corporation of America operates 14 others.

“They are price-gouging because they can,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health, co-author of the study in Health Affairs. “They are marking up the prices because no one is telling them they can’t.”

He added: “These are the hospitals that have the highest markup of all 5,000 hospitals in the United States. This means when it costs the hospital $100, they are going to charge you, on average, $1,000.”

The researchers said other consumers who could face those high charges are patients whose hospitals are not in their insurance company’s preferred network of providers, patients using workers’ compensation and those covered by automobile insurance policies.

Carepoint Health-Bayonne Med­ical Center in Bayonne, N.J., for example, also charges rates 12.6 times the actual cost of patient care. State law limits the maximum that hospitals can charge uninsured patients to 115 percent, a spokesman said.

By comparison, the researchers said, a typical U.S. hospital charges 3.4 times the cost of patient care.

Officials representing the 50 hospitals disputed the findings, saying that they provide significant discounts to uninsured and underinsured patients.

Understanding hospital pricing and charges is one of the most frustrating experiences for consumers and health-care professionals. It is virtually impossible to find out ahead of time from the hospital how much a procedure or stay is going to cost. Once the bill arrives, many consumers have difficulty deciphering it.

Most hospital patients covered by private or government insurance don’t pay full price because insurers and programs such as Medicare negotiate lower rates for their patients. But millions of Americans who don’t have insurance don’t have anyone to negotiate for them. They are most likely to be charged full price. As a result, uninsured patients, who are often the most vulnerable, face skyrocketing medical bills that can lead to personal bankruptcy, damaged credit scores or avoidance of needed medical care.

Researchers said the main factors leading to overcharging are the lack of market competition and the fact that the federal government does not regulate prices that health-care providers can charge. Only two states, Maryland and West Virginia, set hospital rates.

In the United States, hospitals have the chargemaster, a lengthy list of the hospital’s prices for every procedure performed and for every item used during those procedures, such as the cost of one Tylenol tablet or a box of gauze.

To determine the size of markups, researchers used what Medicare allows for the costs of care. That includes direct patient costs, such as emergency-room care, and indirect costs such as administration. It does not include private doctors’ costs.

Using data for all Medicare-certified hospitals between May 2012 and April 30, 2013, researchers tallied up total charges, then divided them by the patient care costs, which they defined as total costs Medicare agrees to pay.

“For-profit players appear to be better players in this price-gouging game,” said Ge Bai, an assistant accounting professor at Washington and Lee University and a study co-author.

Carepoint Health, which owns the Bayonne hospital and two others in Hudson County, N.J., said charge-pricing affects less than 7 percent of its total patient interactions. Without it or adequate reimbursements, “our safety-net hospitals risk closure,” a spokesman said. Urban hospitals receive lower reimbursements than suburban ones, a spokesman said.

Officials at Community Health Systems of Franklin, Tenn. and Hospital Corporation of America, based in Nashville, said hospital charges rarely reflect what consumers actually pay. They said their hospitals offer significant discounts to uninsured patients and charity care for those who qualify. Community Health Systems said in a statement that it provided $3.3 billion in charity care, discounts and other uncompensated care for consumers last year. It also noted that several of its hospitals were not owned by CHS at the time the data were reported.

HCA said in a statement that its uninsured patients are eligible for free care through its charity care program or they receive discounts that are similar to discounts that patients covered by a private insurance plan receive.

The Federation of American Hospitals, which represents for-profit hospitals, said the listed hospitals provided nearly $450 million in uncompensated care in 2012 alone. Including the discounts “would have had a significant effect on the charge-to-cost-ratio reported, and therefore the implications of the study’s results,” it said in a statement.

It makes little economic sense to “mark something up 10 times what it actually costs and then give a discount,” Anderson said. “Clearly they expect someone to pay these inflated prices.”

He noted that the cost of workers’ compensation and auto insurance polices are higher in the states where hospital charges are unregulated because companies have to pay the higher rates.

Lena H. Sun is a national reporter for The Washington Post, focusing on health.

Fourteen US and Canadian cancer institutes will use International Business Machines Corp.’s Watson computer system to choose therapies based on a tumor’s genetic fingerprints, the company said on Tuesday, the latest step toward bringing personalized cancer treatments to more patients.

Oncology is the first specialty where matching therapy to DNA has improved outcomes for some patients, inspiring the “precision medicine initiative” President Barack Obama announced in January.

But it can take weeks to identify drugs targeting cancer-causing mutations. Watson can do it in minutes and has in its database the findings of scientific papers and clinical trials on particular cancers and potential therapies.

Faced with such a data deluge, “the solution is going to be Watson or something like it,” said oncologist Norman Sharpless of the University of North Carolina Lineberger Cancer Center. “Humans alone can’t do it.”

IBM is positioning Watson for exactly this task: an area of medicine where humans can see the vast potential, but can’t begin to wrangle the data needed to achieve it. “Genomics is the secret to unlocking personalized medicine,” said Steve Gold, a Vice President of the IBM Watson Group, at a press conference on Tuesday.

Yet it is unclear how many patients will be helped by such a “big data” approach. For one thing, in many common cancers old-line chemotherapy and radiation will remain the standard of care, and genomic analysis may not make a difference.

The scientists directly involved with Watson aren’t making any promises, but they’re hopeful they can slowly begin to make a difference in the world of cancer treatment, which today leaves a great number of patients without many good options.

“Traditional cancer treatments are moderately effective, associated with moderate toxicity, and many patients still succumb to the disease,” said Lukas Wartman, assistant director of Cancer Genomics at Washington University and a leukemia survivor, at Tuesday’s press conference. “There’s been a lot of pessimism among those [fighting] cancer, and Watson offers an opportunity to fight back against that pessimism.”

Cloud-based Watson will be used at the centers – including Cleveland Clinic, Fred & Pamela Buffett Cancer Center in Omaha and Yale Cancer Center – by late 2015, said Steve Harvey, vice president of IBM Watson Health. The centers pay a subscription fee, which IBM did not disclose.

Oncologists will upload the DNA fingerprint of a patient’s tumor, which indicates which genes are mutated and possibly driving the malignancy. Watson, recognized broadly for beating two champions of the game show Jeopardy! in 2011, will sift through thousands of mutations and try to identify which is driving the tumor, and therefore what a drug must target.

Distinguishing driver mutations from others is a huge challenge. IBM spent more than a year developing a scoring system so Watson can do that, since targeting non-driver mutations would not help.

“Watson will look for actionable targets,” Harvey said, matching them to approved and experimental cancer drugs and even non-cancer drugs (if Watson decides the latter interfere with a biological pathway driving a malignancy).

But Watson has trouble identifying actionable targets in cancers with many mutations. Although genetic profiling is standard in melanoma and some lung cancers, where drugs such as Zelboraf from the Genentech unit of Roche Holding AG target the driver mutation, in most common tumors traditional chemotherapy and radiation remain the standard of care.

“When institutions do genetic sequencing, only about half the cases come back with something actionable,” Harvey said, often because it is impossible to identify the driver mutation or no targeted therapy exists.

The other collaborating centers are Ann & Robert H. Lurie Children’s Hospital of Chicago; BC Cancer Agency in British Columbia; City of Hope, in Duarte, California; Duke Cancer Institute in North Carolina; McDonnell Genome Institute at Washington University in St. Louis; New York Genome Center, Sanford Health in South Dakota; University of Kansas Cancer Center; University of Southern California Norris Comprehensive Cancer Center, and University of Washington Medical Center.

A new bipartisan committee’s working group will gather on Capitol Hill throughout the coming months to find ways to improve electronic health records, according to Senate health committee chairman Lamar Alexander (R-Tenn.) and ranking member Patty Murray (D-Wash.).

The group will work to find five or six ways to “make the failed promise of electronic health records something that physicians and providers look forward to instead of something they endure,” Murray said in an announcement.

All members of the Senate health committee are invited to be a part of the working group. Staff meetings begin this week, with participation from health IT professionals, industry experts and government agencies.

The working group’s goals include the following:

Help providers improve quality of care and patient safety.

Facilitate interoperability between EHR vendors.

Empower patients to engage in their own care through access to their health data.

Protect privacy and security of health information.

The working group isn’t the only way Alexander and Murray are pushing for change when it comes to EHRs.

The Government Accountability Office placed the Veterans Affairs Department’s healthcare system on a list of high-risk programs for 2015, saying at an April 29 Senate Veterans’ Affairs Committee hearing that the agency needs to address inadequate oversight and ambiguous policies.

“Risks to the timeliness, costeffectiveness, quality and safety of veterans’ healthcare, along with other persistent weaknesses GAO and others have identified in recent years, raised serious concerns about VA’s management and oversight of its healthcare system,” said GAO Healthcare Director Debra Draper at the hearing.

GAO prepared testimony (pdf) says VA operates one of the largest healthcare delivery systems in the nation, including 150 medical centers and more than 800 community-based outpatient clinics.

Enrollment in the VA healthcare system has grown significantly, increasing from 6.8 to 8.9 million veterans between fiscal years 2002 and 2013, GAO says.

Over this same period, Congress has provided steady increases in VA’s healthcare budget, increasing from $23.0 billion to $55.5 billion.

At the hearing Draper outlined five major areas that put the VA at risk of failing to provide adequate healthcare to veterans including ambiguous policies and inconsistent processes, inadequate oversight and accountability, information technology challenges, inadequate training for VA staff and unclear resource needs and allocation priorities.

John Daigh, the VA’s assistant inspector general, agreed with Draper’s assessment of the Veterans Health Administration.

“VHA is at risk of not performing its mission as the result of several intersecting factors,” Deigh said. “VHA has several missions, and too often management decisions compromise the most important mission of providing veterans with quality healthcare.”

Daigh focused on the Veterans Integrated Service Networks – regional offices that are set up to oversees VA medical centers in certain areas – saying the current VISN structure has not worked effectively to support and solve problems facing hospitals.

One role of the VISNs is to make sure medical providers at each facility are doing their job properly with periodic reviews.

Daigh said in prepared testimony (pdf) that a forthcoming VA OIG report found that in hospitals where there are specialty units with small numbers of providers, it is difficult to obtain unbiased peer reviews of clinical cases and assessments of clinical performance by peers.

That lack of data makes it difficult for VISN’ to accurately assess medical care providers. But medical centers shouldn’t be shouldering all of the blame, Daigh said.

“The VISN structure has been inconsistently effective in addressing this issue,” he said.

Each VISN has a different internal organization and each medical facility has a different internal structure.

“This lack of standardization makes the dissemination of information and policy to facilities challenging and the acquisition of critical data from facilities more difficult,” Daigh said.

For more:
– go to the hearing page (webcast and prepared testimony available)

Should drug makers be required to disclose their costs to justify rising prices?

This is what a growing number of state legislatures are considering. Over the past several weeks, lawmakers in a handful of states stretching from California to Massachusetts have introduced bills in a bid to force the pharmaceutical industry to conduct an economic striptease.

“We need to have some transparency,” says Tony DeLuca, a Democrat who chairs the Pennsylvania House Insurance Committee and who introduced one such bill earlier this week. “Some of the sticker prices are outrageous. I’m hoping it achieves lower health care costs.”

The bills are not wholly identical. Some would require drug makers to report profits and various operational costs for any medicine that has a price tag of more than $10,000 a year, while others seek this information for all medicines, regardless of price. A bill was also introduced in North Carolina.

The effort comes as a national debate intensifies over prices for prescription medicines. Over the past year, payers – both public and private – have remonstrated over the cost of new specialty drugs for hard-to-treat ailments and for older generic drugs that were supposed to offer low-cost alternatives.

A new poll by the Kaiser Family Foundation found that 76% of Americans overall – and across party lines – say their top health care priority is ensuring that high-cost drugs for chronic conditions, such as HIV, hepatitis, mental illness and cancer, are affordable.

The issue is placing drug makers on the defensive, even as they argue pricey new medicines – notably, those for combating hepatitis C and certain rare diseases – represent good value for illnesses that would, otherwise, cost more to treat in the long run.

These bills represent a new front, though, in trying to blunt escalating price tags. And the legislation is winning enthusiastic backing from business groups, consumers advocates and health insurers, which some legislators say have helped craft language.

“This is about starting a conversation,” says Charles Bacchi, chief executive at the California Association Plans, which worked with a California legislator on one bill. “We need real answers about why these drugs are priced so high. Yes, there are limits to what a state can do, but it’s a debate we need to have.”

To what extent these bills may succeed is uncertain, at best.

Drug makers, not surprisingly, are pushing back and recently helped defeat legislation in Oregon. Earlier this week, the pharmaceutical industry trade group testified against the bill in California, where a vote was postponed until next week in light of opposition, according to a legislative aide.

As far as drug makers are concerned, the bills are not only onerous, but make demands they maintain cannot be met. For instance, an industry trade group argues that providing development costs for some drugs may be impossible when research was simultaneously conducted on other medicines that failed. The bottom line, says the California Healthcare Institute, is that the bill would “stifle innovation.”

“The price charged for an individual drug is not a reflection of development costs,” says Ken Kaitin, director of the Tufts Center for the Study of Drug Development, which receives pharmaceutical industry backing. “Pricing strategies are based on therapeutic value, market size, usage, patent life, competition and other factors.”

Even if one or more bills were to become law, there is no certain path toward lowering prices. But the effort may resonate around the country, especially with the 2016 presidential campaign under way. “This may be a model that other governments may want to build upon,” says Jamie Love of Knowledge Ecology International, a non-profit group that tracks access to medicines issues.

“While it is too soon to know if this prescription transparency legislation will continue to expand this year,” says Richard Cauchi, the program director for health insurance, financing and pharmaceuticals at the National Conference of State Legislatures, “state legislators often do look at what their colleagues in other states are doing.”

Most hospitals don’t have good ways of measuring the complex costs associated with an individual patient’s stay in the hospital. The VA is one surprising exception.

The success of health reform in the US depends on finding ways to control the growth of costs. Hospital care is expensive. And when patients have to be readmitted unexpectedly after discharge, it can really crank up spending.

As we strive to keep health care costs in line, reducing hospital readmissions is drawing a lot of attention. Reducing preventable readmissions could reduce health care spending and improve quality of care at the same time.

But very little research on readmission costs has been done. An exception is a study that found that one in five elderly Medicare patients is readmitted to the hospital within 30 days of being discharged, at an estimated cost of $17.4 billion in 2004.

Most hospitals don’t have good ways of measuring the complex costs associated with an individual patient’s stay in the hospital.

But there is, however, a hospital system that does a very good of job of tracking these costs: the Veterans Health Administration.

Veterans Affairs could provide a blueprint

The Veterans Health Administration (the VA) operates 119 acute care hospitals across the US, and has created an unparalleled comprehensive patient-cost accounting system, its Decision Support System (DSS).

The DSS works from the bottom up by summing the individual resources and costs each individual patients winds up needing during their hospital stay. Unlike most other hospital accounting systems, the VADSS also can separate costs that are fixed regardless of the volume of services provided, such as administrative overhead, from costs that vary with service volume, such as lab tests or imaging. All of this means that the VA can track patients’ costs with greater precision than most hospitals, and can more easily see the cost of readmissions.

There are other reasons why VA is a good setting for studying readmission costs. VA hospitals have a simpler set of incentives around readmitting patients. Under Medicare, hospitals face a trade-off between receiving payments for readmitting Medicare patients and avoiding payment penalties for not readmitting patients under the new ACA regulations.

But in the VA system, budgets are set annually, so there is no financial incentive to readmit patients. It will not increase the amount of money VA hospitals get. And physicians who work in VA hospitals are salaried VA employees. They do not gain financially when they readmit patients, so they have no incentive to provide unnecessary care.

How much money does preventing readmission save?

In a recent study, Theodore Stefos and I used 2011 Decision Support System data to examine the component of cost that varies with a readmission, to provide hospital managers with a more realistic estimate of how much they could save by reducing readmissions.

We found that managers could expect to save $2,140 for the average 30-day readmission prevented. For heart attack, heart failure, and pneumonia patients, expected readmission cost estimates were higher: $3,432, $2,488 and $2,278 respectively.

We also found that patients’ risk of illness was the main driver of expected readmission cost. This is an important finding for managers. Even though this is a factor they cannot control, they can expect that patients with a greater risk of illness might be at greater risk after controlling for other factors such as age. Men also were much more likely to be readmitted than women, as were lower income and unmarried vets. Understanding this information can help hospital managers better predict which patients are at risk for readmission, and to take steps to address this proactively.

While the VA has some processes of care that differ from other health care systems, its experience has important lessons for private sector hospitals, especially for those that treat a high share of chronically ill or low-income patients.

Why it is important to know what readmissions cost

Today hospitals are under increasing pressure to curb readmissions. For instance in 2013 Centers for Medicare & Medicaid Services (CMS) started to financially penalize hospitals for 30-day readmissions that exceed national averages for heart attack, heart failure and pneumonia. As of October 2014, chronic obstructive pulmonary disorder and elective knee and hip replacements are also being targeted and the penalty has increased up to 3% of the total Medicare reimbursement to the hospital.

Hospital managers would like to know what actual cost savings are when a readmission is avoided, so they can understand how readmissions affect their overall budgets.